How to Buy Insurance

“Insurance” - the word that doesn’t need any introduction. There are many benefits of taking an insurance policy. Though its main objective is to provide financial support to the dependents in case of an untimely death of the bread earner of the family, many use it as a tax saving tool too. But many a times in hurry or due to mis- conceptions or mis-guidance many end up
choosing the wrong insurance product. A recent survey conducted by Insurance Regulatory and Development Agency (IRDA) the insurance regulator in India has said that
majority customers are buying insurance based on the price alone which is the biggest mistake. Its common tendency that we want to purchase products at a lower rate therefore we are always tempted towards the cheap and best offers. This concept can hold good only for some products. But for some products it backfires especially in case of insurance. It could be a little or of no use if there is a problem at the time of making a claim for the benefits. Even if you need to pay an extra amount going for the right product as well as right insurer is very much important.

IRDA in its survey has also mentioned that

“In today’s context though the customer has a variety of products to choose from, wise choices can be only made with requisite awareness. Besides having knowledge about different products is not enough, but the customer should also be aware of organizations that look into grievances (if there are problems with a particular policy) and make prompt payment of claims.”

In this post I’m going to deal with the issues

How to choose a good insurance policy? What are the major factors to consider while buying an Insurance policy?

Claim settlement Ratio of a Company

Claim settlement refers to the payment of insured amount (as per the contract) on the claim made by customer. The claim settlement ratio gives the ratio of number of claims settled by the company for every 100 claims it received. The higher the ratio is the better chances of getting money easier. But unfortunately this is not declared publicly by any company because there is a chance that it affects their business if the competitors ratio is better. One can get the claim settlement ratios of various companies in the Annual Report of IRDA which will be released every year. The report gives a list of claim settlement, Repudiation /Rejection and Pending ratios for all the insurance companies. This ratio will be usually more in case of more claim intensive companies. For example In case of life insurance, death claims are usually accepted except in some cases where the death occurs in suspicious conditions within one year of taking the policy. These ratios can also be mis-leading like In case of general insurers whose claim settlement is more than 100%.

In such cases we need to look at the repudiation (rejection) ratio which measures the number of claims rejected against the total claims. Also take a look at the pending ratio which gives the outstanding claims of the company. For new companies claim settlement history may/may not be obtained and they cannot be compared with other existing companies. So Claim settlement ratio although an important parameter, it cannot be the sole criterion to decide on the company.

Financial Stability

Solvency Margin is one of the biggest indicators of the financial stability of a company. It is nothing but the extra amount (either in the form of capital/provision) a company needs to maintain to maintain the claim settlements. The bigger the margin the better is the company. The details of solvency margin are declared to IRDA and also media, news papers, websites of the companies’ e.t.c. Based on this data the IRDA ranks on a monthly as well as yearly basis.

Customer Service and Grievance Redressal

These are critical aspects which each and every one need to look for. But we can’t know unless we go for the policy. The only way to know about this is through friends and acquaintances who already signed up for a policy of the same company. For example go for a company which handles the claims by itself rather than outsourcing it to a third party. Similary check out the third party information sources such as blogs, newspapers, websites, magazines e.t.c. for getting the opinions of the people who already signed up for the policy. Some of such websites are policymantra.com, insurance.blogs201.info, jagoinvestor.com e.t.c.

Willing to share policy wordings

The biggest issue with insurance companies is, the initiation of policy wordings will not be done neither by the agent/company unless the you ask for it. When you ask for a copy they should be willing to provide you a copy of the same. Because this helps us to know some finer details which we may miss out and normally these will be over and above the general terms and conditions related to pre exisisting conditions of the policy offered. So it is important to read the policy wordings before you sign up the form.

Reliable Brokers over Agents

Always try to approach a broker who deals with products of multiple companies. Because agents selling products of a single company will limit your choice. Cross check the information given by the broke with other online portals before deciding. Ease of paying the premium (availability of paying off line and on line) is another issue to consider.

“The customer must not only choose a product which is suitable, but also engage with a company in which the agents provide correct information.” - IRDA in its survey

imagecredit : indiweb

We tried to cover the important aspects that need to be considered. If we missed out anything please let us know so that we can add to the list, which helps to make a much better decision next time.